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Buying a House with Bad Credit Score

Real Estate Agent with Morrie Mages Property

Having your own roof over your head is the dream for most of us. Finally stop paying rent and using the money to pay out your own piece of property sounds much better. But buying a house with a bad credit score can be pretty difficult. Difficult yes, but not impossible. Although it will require a lot of discipline

It is no secret that a bad credit score can be a major obstacle if you want to buy a house. Keep in mind the amount of money you need to lend and the amount of extra cash that is essential if you want to make a purchase with bad credit.

Bad credit score can cost you, in additional assets up to $45,000 during the lifetime, according to data from the Lending Tree.

How does this work?

Mortgage companies, lenders and banks rely heavily on your credit score when they decide whether to lend you money or not. They are analyzing how risky it is to provide you with the funds you requested.

The credit score is on a scale from 300 to 850, with 300 being very low and 800 being a high or a good credit score. Your credit score is the combination of your different financial traits, are you able to pay out the debt, are you paying regularly on time, your mixed financial accounts and the amount of debt you have accumulated.

If your credit score is below 600 mortgage lenders will probably rank you as a high-risk client and decline your request or lend you the money but with a super-high interest rate attached. As a bad credit client, you won’t get some of the breaks the one with a good credit score would. For example, a person with a good credit score (700) will have to pay only about 5-10 percent as a down payment for the house but if your credit score is below 600 (let’s say 590) you will have to pay up to 20 percent. Also, if you are lucky enough to get the loan you will have to pay a lot more in closing costs. Besides standard closing costs for a mortgage, you will have to put aside more money as insurance.

The steps

FHA Loan

FHA or Federal Housing Administration loan is the first thing you should aim for. It is the sweet spot for anyone who is trying to buy a house with the bad credit score

FHA loan is available with no minimum credit requirement and offers many low down payment options. Remember that not all private lenders support the FHA insured loans so make sure you choose the one that does.


Ok, so your chances to find the appropriate lender are reduced by your bad credit but still, there are the ones that will work for you. You just need to find them. Be careful and choose wisely. You need a flexible lender that can handle the client with bad credit and not overwhelm you with additional fees, payments and toxic credit. Make sure your lender supports an FHA type of loan.

Improve your credit score

This one is an obvious solution. Improving your credit score will significantly boost your chance to get the funds you wanted much easier. Make sure all your monthly payments are regulated on time, pay out the accumulated debt. When you get your report read it carefully and make sure there are no mistakes by the bureau.

Save for Down Payment

Let’s say you managed to get the loan you wanted. Amazing news! But be aware that as a low credit client you will have to pay up to 20% of the total value of your future house as a down payment. So it’s really important to accumulate a solid fund. It will attract more lenders who love borrowers with down payment cash and the more lenders you include in your house-buying adventure the better deal you’ll get.

Low Priced Houses

This one is not a surprise either. As a low credit score individual, you are more likely to find a lender who is willing to go for a $100,000 loan than the one who will lend you $300,000. But don’t worry, this is the part where the math works for you. Obviously, you will have to look for the low priced and more affordable house. When you find the one, even if it’s not the house of your dreams, you can move in, enhance your credit score and work from there. You’ll have a chance to learn about household responsibilities along the way. Good for you!

Help Factors

As a borrower with a bad credit score, you have to think outside the box, be creative and do your research. Is there a possibility that you don’t need a good credit score to buy a house?

If you are a military veteran you are qualified for a Veterans Loan. It’s a loan that goes through the U.S Department of Veterans Affairs and it’s a guaranteed house loan. It doesn’t require any down payments and comes with fairly low interest attached.

If you live in a rural area of the United States you could get a USDA insured loan over the U.S Department of Agriculture. This loan also comes with no down payment and a reasonable interest rate.

Don't let your bad credit score stand on your way. It is possible to buy a house even if everyone tells you the opposite. Be brave and think smart. Follow the steps and educate yourself.